Londoners Who Live at the Office

The city's worsening housing shortage is leading developers to convert banks,
law offices and publishing firms into homes—but not everyone is happy about the new developments

By

Ruth Bloomfield

Updated March 28, 2013 9:04 p.m. ET

The pressure to create new housing in London has become so intense that office buildings across the city are being transformed into apartments.

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Long the home of the Royal Bank of Scotland, 75 Leman Street is being converted into 59 apartments.
Berkeley Homes

Later this year Trafalgar One, a development of five apartments, will become the only residential address on Trafalgar Square, with views of landmarks like Nelson's Column and the National Gallery. Until recently, the building, which was originally commissioned as the headquarters of Canadian Pacific Railway Co.CP-0.40%, was being used by a law firm. Three of its units have already sold, leaving one three-bedroom apartment with 2,300 square feet of living space on the market for $9 million and a penthouse priced at $25.6 million

Meanwhile in the heart of London's financial district sits 75 Leman St., long the home of the Royal Bank of Scotland.RBS0.09% Developer Berkeley Homes is now converting the building into 59 apartments and penthouses. Seven apartments are still on the market in the building, including a three-bedroom, 1,741-square-foot penthouse priced at $3.2 million. The apartments will be completed this summer.

Despite concerns about the loss of office space, the British government has announced plans to make it faster and easier for developers and homeowners to carry out this kind of work, without the need for specific legal permission to change the use of the building. At present, this legal loophole can take many months to jump through. Not only is time a factor but in the British planning system, each case is dealt with on its own merits. Local councils can—and regularly do—deny permission on the grounds that they do not support the loss of office space or feel the location is suitable for housing.

Not everyone is thrilled by the looser regulations. London's mayor, Boris Johnson, wants central swaths of the capital, including the financial district (known as the City or the Square Mile), the South Bank and the West End, completely exempted from the new rules, and has lodged an official complaint with the government.

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A model unit at Trafalgar One, a building that once housed a law firm and now contains five apartments.
BMB Property Investments

He predicts the loss of office space will hamper the city's economic prospects on an international stage, and points out that the prime central London sites being circled by property developers will be too costly for regular Londoners (who earn an average of around $56,000 a year).

Earlier this month John Lett, the principal planner at the Greater London Authority, warned that the new regulations could result in a quarter of central London's office space being lost, putting up to 340,000 jobs at risk.

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The former offices of publishing house Bloomsbury, which discovered 'Harry Potter' author J.K. Rowling.
EA Shaw

The government, for its part, is not willing to debate its new policy publicly at this stage. "We are now considering the responses we have received. We will carefully analyze the arguments put forward, and we will make a statement in due course," said a spokeswoman.

One thing is certain. In London the need for new housing is grave. A recent report by Prof. Michael Ball of the Henley Business School suggests there will be an annual deficit between the number of new residents of London and the number of new homes created of between 34,000 and 38,000 every year until 2028.

And Eric Pickles, the British cabinet member who announced the new regulations in January, says the change will allow moribund office blocks to be brought quickly and simply back into productive use.

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The building is converting to five apartments, with two-unit bedrooms starting at $2.8 million for 1,646 square feet.
EA Shaw

Peter Wetherell, director of the Mayfair-based firm Wetherell, points out that most offices in his West End area were originally houses that were gradually converted into offices in the years following World War II, when office space was at more of a premium than residential. Mr. Wetherell estimates that office space in the area is now worth up to $2,300 per square foot, while residential values in the area now exceed $4,600 per square foot.

Even with the new rules in place developers will still have to obtain permits to alter the fabric of office buildings—particularly if they are considered historic landmarks.

In 2009 British entrepreneur Richard Caring led a consortium that bought the offices of the U.S. Navy, previously used by Dwight D. Eisenhower during World War II, for a reported $378 million. Mr. Caring's plan was to convert the 180,000-square-foot building, in upscale Mayfair, into apartments.

However the deal ran into lengthy arguments with the local authority, Westminster Council, over the amount of money the consortium would need to pay toward providing low-cost housing in the area, a regular condition imposed on British developers wanting to build high-end housing developments. That, combined with financial difficulties during the recession, led the consortium to put the building up for sale late last year.

On the Market

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Other developers have successfully jumped through the necessary hoops to reinvent offices, however.

Nick and Christian Candy, the brothers behind the One Hyde Park development in London's Knightsbridge (a project which has broken records with prices of up to around $10,600 per square foot), have just won permission to convert their own company office into a private house of almost 13,000 square feet, complete with six bedroom suites and a basement to house a gym, pool, sauna and massage room.

Watching this move with growing concern is Peter Rees, who is in charge of development and building permits within the City. He points out that, with a vacancy rate below 8%, office space is already at a premium. "The people who buy these flats are not going to live in them," he said. "London is very attractive to small investors from all over the world. They are wanting to put their money into property in London but they have no intention of living there, or even renting them out. All they want is security for their money and that is very bad for London. It deadens an area."

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